It only takes a little time to browse the internet and find one of the hundreds of doom and gloom articles or videos forecasting the real estate market crash. Many of these creators and writers reference the 2008 crash and recall similar circumstances and economic conditions to the market today. However, the market has proven them wrong through 2023 because what we see today fundamentally differs from the events that occurred during the 2008 crash. In this article, we will review the 3 primary differences between the market conditions in 2008 and the current market conditions.

Supply

The supply of homes is the most influential factor in this crash narrative because an overvaluation of real estate paired with an oversupply of homes would translate into a market crash like in 2008. Unlike 2008, today’s market has a severe shortage of homes. A shortage claimed by Fannie Mae to be "3.8 million" homes. In their article, they claim the shortage was worsened by the events of COVID-19 "as evidenced by the surge in rents and home prices in 2021.". We believe this shortage will continue as we observe markets like Houston slowing down the issuance of building permits by 8.9% and construction employment dropping simultaneously by "19,000 … jobs [since] February [2020]". This outlook on housing supply will not even meet the constrained demand that the rising interest rates have created, and demand will only grow as the Fed drops rates. In summary, the prior facts indicate that the current housing supply levels will only prop up the value of homes even if they are overvaluated.

Mortgage Defaults and Foreclosures

The rate of mortgage defaults and foreclosures is also vastly different from the 2008 market and is even drastically lower than pre-COVID numbers. At the peak of the 2008 crash, default/foreclosure rates were 4.2%, whereas today, they’re 1.2%, which is historically low despite the panic articles you can find written online. Just before the pandemic, the rate was 2.2%, nearly 2x the current rate. While some foreclosures were kept off the books due to laws and relief policies instituted during COVID-19, we can also thank more responsible and stringent lending practices and more conservative lending products put in place after 2008. Ultimately, these rates interpret a market with fewer distressed sellers, a further supply decrease to the housing market, and little room for a market price correction.

Outside Economic Factors

While many outside factors affect the Real estate market, we will only talk about GDP Growth, Unemployment, and Interest rates. In 2008, the GDP contracted by 10.8%, according to the Bureau of Economic Analysis 2018 revision. A stark difference from the 4.9% GDP Growth we saw in 2023, also a BEA statistic. Unemployment also differed according to the Bureau of Labor Statistics, with 2008’s unemployment at 5.78% and 2023’s unemployment at 3.7%. Finally, we come to interest rates, the only factor in worse condition than the 2008 crash. Interest rates in 2008 for a 30-year fixed mortgage were, on average, 6.23%, and today, January 22, 2024, the interest rates are, on average, 7.591%. After looking at all of these factors, you can see that none are similar to the conditions of the 2008 crash. All of these statistics write a story that makes the 2008 crash repeating itself unlikely.

In Conclusion

When you consider these factors, they begin to form a narrative that doesn’t support a 2008 crash repeating itself. However, it still doesn’t spell out a consumer-friendly narrative. If the Fed continues to drop rates without a real estate market correction, housing prices may continue to increase in the immediate future. The housing supply shortage will then prop up these prices as demand increases when rates drop. Indicating that 2023 may continue to be a seller’s market while real estate prices climb.